How regime change in Iran could affect global oil prices
Senior Israeli officials said this week that their military campaign against Iran could trigger the fall of the regime, an event that would have enormous implications for the global oil market.
The oil market has reacted with remarkable restraint as Israel has bombed the third-largest crude producer in OPEC for eight straight days, with no clear sign the conflict will end anytime soon.
Oil prices are up about 10% since Israel launched its attack on Iran a week ago, but with oil supplies so far undisturbed, both U.S. crude oil and the global benchmark Brent remain below $80 per barrel.
Still, the risk of a supply disruption that triggers a big spike in prices is growing the longer the conflict rages on, according to energy analysts.
President Donald Trump has threatened the life of Iran's supreme leader Ayatollah Ali Khamenei and is considering helping Israel destroy the Islamic Republic's nuclear program. For its part, Iran's leadership is more likely to target regional oil facilities if it feels its very existence is at stake, the analysts said.
Israel's primary aim is to degrade Iran's nuclear program, said Scott Modell, CEO of the consulting firm Rapidan Energy Group. But Jerusalem also appears to have a secondary goal of damaging Iran's security establishment to such an extent that the country's domestic opposition can rise up against the regime, Modell said.
"They're not calling it regime change from without, they're calling it regime change from within," said Modell, a former CIA officer and Iran expert who served in the Middle East.
Prime Minister Benjamin Netanyahu denies that regime change is Israel's official goal, telling a public broadcaster on Thursday that domestic governance is an internal Iranian decision. But the prime minister ascknowledged Khamenei's regime could fall as a consequence of the conflict.
Defense Minister Israel Katz on Friday ordered Israel's military to intensify strikes on Iran with a goal to "destabilize the regime" by attacking the "foundations of its power." Israel reportedly sought to kill Khamenei in the opening days of its campaign, but Trump vetoed the plan.
There are no signs that the regime in Iran is on the verge of collapse, Modell said.
But further political destabilization in Iran "could lead to significantly higher oil prices sustained over extended periods," said Natasha Kaneva, head of global commodities research at JPMorgan, in a note to clients this week.
There have been eight cases of regime change in major oil producing countries since 1979, according to JPMorgan. Oil prices spiked 76% on average at their peak in the wake of these changes, before pulling back to stabilize at a price about 30% higher compared to pre-crisis levels, according to the bank.
For example, oil prices nearly tripled from mid-1979 to mid-1980 after the Iranian revolution deposed the Shah and brought the Islamic Republic to power, according to JPMorgan. That triggered a worldwide economic recession.
More recently, the revolution in Libya that overthrew Muammar Gaddafi jolted oil prices from $93 per barrel in January 2011 to $130 per barrel by April that year, according to JPMorgan. That price spike coincided with the European debt crisis and nearly caused a global recession, according to the bank.
Regime change in Iran would have a much bigger impact on the global oil market than the 2011 revolution in Libya because Iran is far bigger producer, Modell said.
"We would need to see some strong indicators that the state is coming to a halt, that regime change is starting to look real before the market would really start pricing in three plus million barrels a day going offline," Modell said.
If the regime in Iran believes it is facing an existential crisis, it could use its stockpile of short-range missiles to target energy facilities in the region and oil tankers in the Persian Gulf, said Helima Croft, head of global commodity strategy at RBC Capital Markets.
Tehran could also try to mine the Strait of Hormuz, the narrow body of water between Iran and Oman through which about 20% of the world's oil flows, Croft said.
"We're already getting reports that Iran is jamming ship transponders very, very aggressively," Croft told CNBC's "Fast Money" on Wednesday. QatarEnergy and the Greek Shipping Ministry have already warned their vessels to avoid the strait as much as possible, Croft said.
"These are not calm waters even though we have not had missiles flying in the straits," she said.
Rapidan sees a 70% chance the U.S. will join Israeli airstrikes against Iran's nuclear facilities. Oil prices would probably rally $4 to $6 per barrel if Iran's key uranium enrichment facility at Fordow is hit, Modell said. Iran will likely respond in a limited fashion to ensure the regime's survival, he said.
But there is also a 30% risk of Iran disrupting energy supplies by retaliating against infrastructure in the Gulf or vessels in the Strait of Hormuz, according to Rapidan. Oil prices could surge above $100 per barrel if Iran fully mobilizes to disrupt shipping in the strait, according to the firm.
"They could disrupt, in our view, shipping through Hormuz by a lot longer than the market thinks," said Bob Bob McNally, Rapidan's founder and former energy advisor to President George W. Bush.
Shipping could be interrupted for weeks or months, McNally said, rather than the oil market's view that the United States Fifth Fleet, based in Bahrain, would resolve the situation in hours or days.
"It would not be a cakewalk," he said.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Hill
an hour ago
- The Hill
If he wages war unilaterally, Trump will only be the latest of many presidents to do so
Twenty-four years ago this week, I represented a group of bipartisan members of Congress in challenging the Obama administration's decision to attack Libya without a declaration of war. It is a curious anniversary of the litigation, because many of the politicians and pundits who supported (or remained silent on) the action of President Barack Obama are now appalled that President Trump is considering an attack on the Iranian nuclear facility at Fordow, which is buried deep in a mountain. Later, some Democratic members would move to expand presidential powers to launch attacks without approval. Sen. Tim Kaine (D-Va.), the drafter of the current legislation to limit Trump's authority, drafted legislation in 2018 to put the authorization for use of military force on virtual autopilot. That was during the first Trump administration, and I testified against that legislation as a virtual authorization for 'endless war.' In 2011, Obama approved a massive military campaign that not only attacked Libya's capital city but also armored columns of the Libyan military. The clear intent was regime change supported by then Secretary of State Hillary Clinton, who also rejected the need to consult with Congress, let alone secure approval before launching a massive attack on another nation. Today, Trump is contemplating the use of the Massive Ordnance Penetrator or 'bunker buster' bomb, to destroy the facility. It may be the only weapon that can reach the underground enhancement areas, and it can only be delivered by American B-2 Spirit stealth bombers. It takes courage to oppose such actions by a president of your own party or against an unpopular foe. Notably, among my clients 24 years ago was Rep. Ron Paul (R-Texas), the father of Sen. Rand Paul (R-Ky.) who also believes that a president should secure approval of Congress before any such attack occurs. The other group that would demand such approval was the Framers themselves. They saw foreign entanglements and military interventions as the markings of despots and tyrants. At the Constitutional Convention, delegate Pierce Butler insisted that a president should not be able to 'make war but when the nation will support it.' Nevertheless, he did not even receive a second to his motion because the Framers demanded real checks on this power. They imposed that limit by only allowing the nation to go to war with the express declaration of Congress. Article I, Section 8, Clause 11 states that the 'sole' authority to declare war rests with Congress. In 1793, George Washington supported the denial of this power to a president as a clear and binding promise that 'no offensive expedition of importance can be undertaken until after they have deliberated upon the subject and authorized such a measure.' The Framers thought that they had solved the problem. In the Pennsylvania ratification convention, James Wilson explained the need for congressional approval as a guarantee that no one will 'hurry us into war [since] it is calculated to guard against it.' The purpose of such approval is not just to limit foreign wars but to secure the support of the people before such wars are commenced. After all, presidents get the glory of wars, but citizens pay the cost in lives and treasure. Politicians, however, quickly became leery of taking such ownership over wars. Congress became increasingly passive in the face of popular military engagements, using ambiguous 'authorizations' to preserve the ability to later insist that they were never really in support of wars. While some of us opposed the Iraq War, politicians like then-Sen. Joe Biden (D-Del.) were all-in on the invasion. Yet, when he ran for president, Biden insisted that he had opposed the long, drawn-out war. Then there was Sen. John Kerry. During the Democratic primary in 2004, Kerry portrayed himself as against the Iraq War, even though he had also voted for it. Later, when confronted by George Bush in the general election over his vote against spending $87 billion to rebuild Iraq and Afghanistan, he offered his notorious response that 'I actually did vote for the $87 billion, before I voted against it.' Despite the clear text of the Constitution, courts have repeatedly allowed this circumvention of Article I. Congress has only declared 11 wars while allowing more than 125 military operations, including Vietnam, Korea and Afghanistan. Congress has not declared war in the 80 years since World War II. In my case, the Obama administration would not even refer to an attack on another nation as a 'war.' It insisted that it was a 'time-limited, scope-limited military action,' or a 'kinetic action.' The court allowed the war to proceed. Both Congress and the courts have effectively amended the Constitution to remove the requirement of war declarations. As a result, the precedent favors Trump in arguing for his right to commit troops unilaterally. Whereas Kaine and others insist that there has been no attack by Iran on the U.S., Trump can cite the fact that Iran has killed or wounded thousands of Americans directly or through surrogates, including attacks on U.S. shipping through its Houthi proxy forces in Yemen. More importantly, he can cite decades of judicial and congressional acquiescence. For my part, I think the Framers were right then and they are right now. We have shown just how right they were with decades of undeclared wars and so little accountability. The fact that these actions are presumptively unconstitutional is an inconvenient fact buried in decades of war hype and hypocrisy. That is why Trump is unlikely to go to Congress and, as a matter of precedent, he does not have to. He will assume the same power his predecessors enjoyed, including recent Democratic presidents. With that history and politics on his side, Trump could turn Fordow into the most expensive hole in history. Jonathan Turley is the Shapiro professor of public interest law at George Washington University and the author of 'The Indispensable Right: Free Speech in an Age of Rage.'
Time Magazine
2 hours ago
- Time Magazine
Iran Issues New Grave Warning to Trump, U.S.
Iran's Foreign Minister Abbas Araghchi warned on Saturday that if the U.S. were to get involved in the Israel-Iran conflict, the result would be 'very, very dangerous' for everybody. 'The tweets, interviews by the U.S. President, [it's] quite clear that he's talking about the U.S. leadership on these questions [of a potential U.S. involvement],' Araghchi told reporters. 'Unfortunately, we have heard that the U.S. may join in this aggression. That would be very unfortunate and I think that would be very, very dangerous for everybody.' Araghchi also claimed that Iran has 'many indications' that the U.S. has been involved in Israel's bombardments of Iran since 'day one.' These remarks come amid uncertainty and debate as to the potential U.S. involvement in the conflict and what that might look like moving forward. Trump, who has said that the U.S. has not been involved in the Israeli strikes thus far, has given himself two weeks to make the decision as to whether the U.S. will strike on Iran. 'Based on the fact that there's a substantial chance of negotiations that may or may not take place with Iran in the near future, I will make my decision whether or not to go within the next two weeks,' said Trump, in a statement delivered by the White House press secretary Karoline Leavitt on Thursday. Leavitt went on to add that 'if there's a chance for diplomacy, the President's always going to grab it, but he's not afraid to use strength as well.' The U.S. and Iran had long been engaged in talks, in the hope of reaching a nuclear deal. Read More: How Netanyahu Pushed Trump Toward War Officials from both countries were set to meet in Oman's capital of Muscat last weekend for the next round of nuclear discussions. But Oman's Foreign Minister Badr Albusaidi announced that, in light of the Israel-Iran active conflict, those talks would no longer be going ahead. This came after state television reported that Iran's Foreign Ministry spokesman Esmail Baghaei called nuclear talks with the U.S. 'meaningless.' While Trump has called for Iran to return to the table, Iranian officials appear to be reluctant. 'In order for us to come back to diplomacy, the aggression should be stopped,' Araghchi said on Saturday. 'I cannot go to negotiation with the United States when our people are under bombardment, under the support of the United States.' Trump has stated multiple times in the first months of his second term that a deal with Iran would have to include a ban on the nation enriching uranium—something that would allow them to produce nuclear weapons. He has also called for something more permanent than a cease-fire. 'We're looking for better than a cease-fire,' Trump told reporters on Air Force One on June 17 as he left the G7 summit. 'A real end, not a cease-fire. An end… giving up, entirely.' Trump later doubled down on his view of what Iran should do via a post on his social media platform, Truth Social, writing: 'UNCONDITIONAL SURRENDER!' Read More: Here Are the Top Iranian Generals and Scientists Targeted and Killed by Israeli Strikes However, Trump has delivered cryptic responses when asked exactly if and how the U.S. might get involved in the Middle Eastern conflict. On Wednesday, when asked if the U.S. is 'moving closer' to striking Iranian nuclear facilities, Trump said: 'I may do it, I may not do it, nobody knows what I'm going to do… I can tell you this. Iran's got a lot of trouble. They want to negotiate. I said, 'Why didn't you negotiate with me before? All this death and destruction.'' He later said in the Oval Office: "I like to make the final decision one second before it's due, because things change, especially with war.' Meanwhile, Araghchi's new warning is the latest in a long line of stern words and threats from Iranian officials in regards to a potential U.S. involvement in the current combat. Read More: Iran's Supreme Leader Calls Out Trump, Threatens 'Irreparable Damage' If U.S. Joins Israeli Conflict On Wednesday, Iran's Supreme Leader Ali Khamenei threatened 'irreparable damage' if the U.S. joins the Israeli conflict. 'The Americans should know that any U.S. military intervention will undoubtedly be accompanied by irreparable damage,' Khamenei said in a televised address. 'The U.S. entering in this matter [war] is 100% to its own detriment. The damage it will suffer will be far greater than any harm that Iran may encounter.' The Israel-Iran conflict has entered its ninth day and shows no signs of slowing down. Israel's initial strikes on Iran, conducted in the early hours of June 13, targeted multiple nuclear and military sites, amid rising concerns of Iran's nuclear capabilities. Israeli Prime Minister Benjamin Netanyahu said the strikes, part of Operation Rising Lion, 'would continue for as many days as it takes to remove this threat.' Iran followed through on its promise to retaliate, and the rivals have been trading deadly missiles and threats since, with the reported death tolls in both countries rising as a result.
2 hours ago
MAGA star Steve Bannon plays outsized role in Trump's Iran decision: Sources
By the time President Donald Trump and MAGA podcaster Steve Bannon sat down for lunch on Thursday, the president had already approved a plan on how the U.S. might attack an Iranian nuclear facility. American diplomats and their family members were being offered military evacuations from Israel, while the military began moving aircraft and ships to the region. The USS Nimitz – an aircraft carrier that can carry some 60 fighter jets – was set to arrive in the Middle East by the weekend with several smaller ships by its side. Officials said the extraordinary show of force would be needed if Trump pulled the trigger on the military option – both to strike Iran's deeply buried nuclear facility and to protect the some 40,000 U.S. troops who Iran and proxy militant groups could target for retaliation. Trump had just emerged from the Situation Room, where sources say he was warned: A U.S. attack on a key Iranian nuclear facility could be risky, even with a massive "bunker-buster" bomb believed to be able to penetrate some 200 feet through hardened earth. The bomb, known as the Massive Ordnance Penetrator, had only been tested, but never used in a real-life tactical situation, experts say. And the exact nature of the concrete and metal protecting the Iranian nuclear site known as Fordo isn't known, introducing the chance that a US strike would poke a hornet's nest without destroying it. Bannon, who had already spoken with the president by phone ahead of their lunch, thought all of it was a bad idea, according to several people close to him. Sources say he arrived at the White House for his previously scheduled lunch with Trump armed with specific talking points: Israeli intelligence can't be trusted, he planned to say, and the bunker-buster bomb might not work as planned. The precise risk to the U.S. troops in the Middle East, particularly the 2,500 in Iraq, also wasn't clear if Iran retaliated, he would add. A White House official insists that by the time Trump sat down with Bannon for lunch the president had already made a decision to hold off on a strike against Iran. That decision was relayed to White House Press Secretary Karoline Leavitt who then went to the podium, telling reporters the president would decide "whether or not to go" within two weeks. Another senior administration official dismissed the idea that the "bunker-buster" bomb might not work. 'This Administration is supremely confident in its abilities to dismantle Iran's nuclear program. No one should doubt what the U.S. military is capable of doing,' the official said. Still, Bannon's extraordinary access to Trump this week to discuss a major foreign policy decision like Iran is notable considering Bannon holds no official role in the military or at the State Department. Bannon declined to comment on his lunch with Trump, saying only Israeli Prime Minister Benjamin Netanyahu 'needs to finish what they started.' 'Bannon in a lot of ways has been – day in and day out – delivering a very, very tough and clear message' against military action, said Curt Mills, executive director of The American Conservative, who also opposes military action in Iran. That strategy, Mills said, has been key to countering other Trump loyalists who favor teaming up with Israel for a strike. 'You can call it infantile. You can call it democratic, or both,' Mills told ABC News. 'This is a White House that is responding in real time to its coalition [which is] revolting to show it's disgusted with the potential of war with Iran.' At odds with Bannon's viewpoint on Iran are other influential conservatives. 'Be all in, President Trump, in helping Israel eliminate the nuclear threat,' Sen. Lindsey Graham, R-South Carolina, told Fox News host Sean Hannity this week. 'If we need to provide bombs to Israel, provide bombs. If we need to fly planes with Israel, do joint operations.' According to one U.S. official, Defense Secretary Pete Hegseth mostly ceded the discussion to military commanders, including Gen. Erik Kurilla, commander of military forces in the Mideast, and Gen. Dan Caine, chairman of the Joint Chiefs of Staff, who have spent considerable time talking with Trump by phone and in person in recent weeks about his options with Iran and the risks involved, which can be extraordinarily complicated. 'Anybody will tell you the biggest threat to the region is a nuclear-armed Iran,' the official said. 'No one wants Iran to have a nuke.' Sean Parnell, chief Pentagon spokesperson, pushed back on the suggestion Hegseth hasn't taken a lead role in the talks, calling it "completely false." He said Hegseth speaks with Trump 'multiple times a day each day,' and attended meetings with the president in the Situation Room. 'Secretary Hegseth is providing the leadership the Department of Defense and our Armed Forces need, and he will continue to work diligently in support of President Trump's peace through strength agenda,' Parnell said. Sources say Secretary of State Marco Rubio, who is also the president's interim national security adviser, has been another constant presence at the president's side during the discussions along with Trump's Mideast adviser Steve Witkoff. Once seen as one of Trump's most hawkish cabinet members, Rubio espoused a hardline stance on Iran for years and warned last month that the country was now 'a threshold nuclear weapons state.' But since then, sources say, Rubio has become much more closely aligned with MAGA's 'America First,' noninterventionist stance, adding that he is acutely aware of the political repercussions that a direct attack on Iran could bring about. U.S. and Israeli intelligence agree that Iran has been enriching uranium to a dangerously high concentration and could quickly amass enough of it to build several nuclear weapons. But U.S. intelligence also cautions that its supreme leader, Ayatollah Ali Khamenei, hasn't given the order to build those devices. The question now is how soon Iran could declare itself a nuclear power after that decision was made. The uncertainty has drawn comparisons in MAGA circles to faulty intelligence in Iraq, which supporters of the movement blame for the lengthy war. Tulsi Gabbard, Trump's director of national intelligence, who has warned on social media of 'warmongers,' told Congress this spring that 'Iran is not building a nuclear weapon.' When asked Friday about that assessment, Trump responded that the intelligence community 'is wrong' and 'she's wrong.' Gabbard later said her testimony was being taken out of context. 'America has intelligence that Iran is at the point that it can produce a nuclear weapon within weeks to months, if they decide to finalize the assembly. President Trump has been clear that can't happen, and I agree,' she wrote in a post on Friday. Sources say another factor could have played a role in Trump's decision to hold off on striking Iran for now despite his insistence that Iran was close to a nuclear bomb. A third aircraft carrier, the USS Gerald R. Ford and its guided-missile destroyers are set to deploy early next week to head toward Europe, according to the Navy. The carrier strike group needs time to travel before it could be in a position to help protect troops in theater should Trump opt to move ahead with the strike two weeks from now. Officials caution that any success Bannon might have in pulling the president back from the brink of war could be brief. When asked on Friday by reporters if he would ask Israel to stop bombing Iran to enable diplomatic negotiations, Trump said probably not. 'If someone is winning, it's a little bit harder to do than if someone is losing,' Trump said of the Israelis. 'But we're ready, willing and able and have been speaking to Iran and we'll see what happens. We'll see what happens.'
